European finance: More than 1,000 City jobs to be lost in Commerzbank's €9bn German unification

Up to 1,200 investment bankers and traders will lose their jobs under a €9.8bn (£8bn) takeover of Dresdner Bank by Commerzbank agreed last night.

The two-stage shares-and-cash deal, approved by the boards of Commerz and Allianz, the insurer that owns Dresdner, is due to generate cost-savings of €5bn by 2012 and will see 9,000 jobs from a combined staff of 73,000 disappear.

It will create a genuine competitor to Germany's biggest bank, Deutsche, but spell the end of Dresdner Kleinwort, the investment bank that traces its origins back to 1786 and which has been hammered by toxic investments.

DKIB, which lost €846m in the first half of this year, will shed half its 2,500 staff in London and close its proprietary trading desk, which becomes the latest casualty of the US-instigated credit crisis, saving the merged bank €2bn. The rump of its business will be folded into Commerzbank's investment arm.

Commerz, already Germany's second-largest bank, will initially buy 60% of Dresdner and complete its takeover within 18 months via a merger, sources in Frankfurt said. Shares will account for 80% of the transaction.

The all-German deal, desperately sought by Allianz, sees off a potentially bigger offer from China Development Bank that would have come in three stages and would have needed the Beijing government's approval at every stage.

The Chinese offer came days after the German government approved draft legislative changes that would hand the cabinet an effective veto over foreign takeovers of key German firms and provoked considerable hostility among politicians.

But it won some favour among unions worried by the scale of the job losses as the Chinese promised to make no redundancies. The unions may now be persuaded by generous payoffs to accept the deal due to be approved by the supervisory boards of Commerz and Allianz last night.

The takeover will see the closure of 300 of the combined 1,900 branches and thousands of jobs cut. One of the banks' headquarter buildings in Frankfurt will be sold off.

Commerzbank senior executives and managers will, the sources said, run the combined bank under Martin Blessing, the chief executive. Dresdner's logo will disappear but its name may be preserved.

Allianz, based in Munich, will retain between 20% and 30% of the new Commerzbank and has agreed that its stake will not exceed 30%.The insurer will have only two seats on the board, with chief executive Michael Diekmann serving as deputy chairman under Klaus-Peter Müller. It will also acquire Commerz's investment management business, Cominvest, worth about €700m.

The transaction brings to an end a seven-year involvement in Dresdner by Allianz . But the insurer will have to return about €1bn to Commerz if DKIB is forced to make further write-downs under an agreed "risk shelter" condition of the deal.

It also marks a new stage in recent accident-prone German banking consolidation that has seen previous efforts by Commerz and Dresdner as well as between Deutsche bank and Dresdner/Commerz founder. It could spur further merger activity in Germany's crowded retail banking sector dominated by state-controlled savings banks and Postbank, which Deutsche Post wants to sell.